Rating or no rating? That is the question: An empirical examination of UK companies
Tucker, J. , Gonis, E. and Paul, S. (2012) Rating or no rating? That is the question: An empirical examination of UK companies. European Journal of Finance, 18 (8). pp. 709-735. ISSN 1351-847X
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Publisher's URL: http://www.tandfonline.com/doi/full/10.1080/135184...
The aim of this paper is to examine the main determinants of the rating likelihood of UK companies. We use a binary probit specification to model the main drivers of a firm’s propensity to be rated. Using a sample of 245 non-financial UK companies over the period 1995 to 2006, the study establishes important differences in the financial profiles of rated and non-rated firms. The results of the rating likelihood models indicate that the decision to obtain a rating is driven by a company’s financial risk, solvency, default risk, public debt issuance, R&D, and institutional ownership; thus identifying a wider range of determinants and extending the current literature. The study also finds that the rating decision can be modelled by means of a contemporaneous or predictive specification without any loss of efficiency or classification accuracy. This offers support to the argument that the rating process is fundamentally forward-looking.
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